Central banks’ exchange rate interventions are typically attributed to precautionary, prudential, or mercantilist motives. This column documents the prevalence of an alternative motive – that of stabilising the exchange rate – in emerging markets, where, despite heavy intervention, the Global Crisis saw important deviations of the real exchange rate from its equilibrium value. Exchange rate intervention is shown to be effective, but more so at containing appreciations than depreciations.
Switzerland has had consistently low tax rates and a remarkably stable income distribution, although in the last 20 years the share of top incomes has risen. This column documents that the top 0.01%’s share doubled, meaning Switzerland is similar to European countries in terms of the top 1%’s income share, but closer to the US for higher top incomes. Labour incomes have grown in importance among top income earners. At the same time, however, top incomes have exhibited large and possibly increasing variations over the business cycle.
In the wake of the crisis, forward guidance has become a prominent tool of monetary policy. This column argues that central banks should go a step further, communicating to the public the internal policy debate that goes into monetary policy formation – especially regarding uncertainty. Since policy is determined contingent on a range of possible outcomes, forward guidance would become more effective by explicitly communicating how policy would respond along this uncertain path.
In the aftermath of the financial crisis, governments have been reducing their potential exposures to the banking system. This column argues that a fiscal backstop remains necessary for a banking system, contrary to what many policymakers claim. The main reason is that private arrangements may not be sufficient in a severe crisis. Without a credible backstop, depositors will run on a troubled banking system.
Some argue that growth across Africa is fundamentally a result of rising commodity prices and that if these prices were to collapse, so too would Africa’s growth rates. This column documents substantial shifts in the occupational structure of most African economies between 2000 and 2010 and thus provides a good reason for cautious optimism about the continent’s economic progress.
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